Posted!

Join the Conversation

Comments

Welcome to our new and improved comments, which are for subscribers only.
This is a test to see whether we can improve the experience for you.
You do not need a Facebook profile to participate.

You will need to register before adding a comment.
Typed comments will be lost if you are not logged in.

Please be polite.
It's OK to disagree with someone's ideas, but personal attacks, insults, threats, hate speech, advocating violence and other violations can result in a ban.
If you see comments in violation of our community guidelines, please report them.

Gov. Bill Haslam renewed the case for his internet sales tax proposal on Cyber Monday, calling the current structure unfair to Tennessee small businesses.

The measure would require out-of-state businesses to collect and pay a sales tax if their sales exceed $500,000. It is part of a larger effort to pressure Congress or the Supreme Court to address the issue nationally.

“This isn’t a new tax,” Haslam said. “This is a tax that’s already owed on goods that are just being bought a different way, and it’s just not fair to our local retailers – our local retailers who pay property tax and collect sales tax and sponsor the Little League baseball team. For them to do all that and to be at a price disadvantage with somebody out of state who doesn’t have to, that’s just not fair.”

At the center of the debate is a 1992 Supreme Court decision, Quill Corp. v. North Dakota, which determined businesses must have a physical presence in a state to collect a sales tax. With the growth of online sales in the decades since, lawmakers at the national level, including Sen, Lamar Alexander, have sought to make changes to the tax law, but have been unsuccessful.

In 2015, U.S. Justice Anthony Kennedy said the Quill decision should be revisited, prompting states including Alabama and South Dakota to force the issue. In both states, lawsuits have followed legislation that is similar to Haslam's proposal.

Department of Revenue Commissioner Richard Roberts has said that he would welcome a lawsuit if the proposal moves forward, a view that Haslam reinforced Monday.

“Ultimately, this is going to be decided by the Supreme Court,” Haslam said. “What we’re setting in motion is a process to where the Supreme Court will decide that hopefully sooner rather than later.”

The revenue department estimates that Tennessee has missed out on as much as $450 million in annual sales tax from out-of-state sellers.

The proposal must be approved by the Tennessee legislature’s Government Operations Committee, which will consider the measure Dec.14-15. Rep. Jeremy Faison, R-Cosby, chairman of the House Government Operations Committee, said he does not expect lawmakers to approve the proposal.

“It is going to be a tough sell when there is a billion dollars in surplus right now, getting the legislature as a whole to go with an internet sales tax,” Faison said.

Faison said he is still studying the measure, and that the committee will be consulting constitutional scholars and considering complaints from local mom-and-pop businesses seeking a more level playing field with out-of-state retailers.

Under procedures for proposed state rules, a rejection by the Governments Operations Committees would throw a final decision on approval or rejection to a vote by the full House and Senate during the 2017 legislative session. If the committees fail to act, then the rule is deemed approved — though a bill could be filed to reject it during the regular legislative session.

When asked about potential resistance from lawmakers, Haslam compared out-of-state retailers to drivers of electric cars, which some lawmakers argue should pay a tax for Tennessee roads even though they don’t buy gas.

“I’d say, well, is that a new tax?” Haslam said. “No – people have a new way of transportation they didn’t have before, and so they should be a part of paying for the system the way everybody else does. It’s the exact same thing.”

At least 20 other states are reportedly considering similar rules. The Ohio Supreme Court ruled Nov. 17 that out-of-state retailers could be required to collect state taxes without a physical presence, potentially setting up another federal court challenge.

Sen. Mike Bell, R-Riceville, chairman of the Senate panel, said one obvious question is why Tennessee should be setting up a lawsuit, at taxpayer expense, when other states already have challenges in the pipeline. Another question, he said, is raised by the $500,000 threshold.

If one retailer has $499,000 in Tennessee sales and is not required to collect taxes while another with $500,001 is required, he said, “How can that be equal treatment under the law?”

Asked for comment on the possibility of legislators rejecting the rule, Department of Revenue spokeswoman Kelly Nolan Cortesi said in an email: “If we’re going to be a sales tax-driven state, we have to be fair to our local businesses, and this issue is only growing. Mastercard’s Spending-Pulse reported that e-commerce increased 20 percent after Thanksgiving in 2015 while sales in brick-and-mortar stores dropped 10.4 percent.

“In 2015, more Americans shopped online over the Thanksgiving-Black Friday weekend than shopped in stores. The U.S. Census Bureau’s third quarter 2016 e-commerce sales estimate increased 15.7 percent from the third quarter of 2015."

Bell said that he agrees with arguments that the present state of affairs is unfair to in-state retailers, but that a decision on the issue should constitutionally rest with Congress. The rule, he said, appears to be a rare case of states interjecting themselves into an issue that, under the U.S. Constitution’s “commerce clause,” should be left to the federal government — and coming at a time when many state politicians are regularly objecting to “federal overreach” into matters that should be left to the states.